The Dow Jones Industrial Average has closed half-a-per cent higher on Wall Street after a roller-coaster day of trading, but the market still ended the week with steep losses.

The Dow Jones gained 0.54 per cent on Friday to close at 11,444.61, while the broader S&P 500 was down 0.06 per cent to 1,199.38, and the tech-heavy Nasdaq Composite fell 0.94 per cent to 2,532.4.

The one bright spot that brought optimism was better than expected data showing that the country's economy generated 117,000 jobs in July.

Economists had forecast only a net 84,000 jobs generated, and the unemployment rate fell to 9.1 per cent after the data.

The mildly positive surprise on jobs came despite a drumbeat of bad economic news over the past week, which had led some analysts to worry that the US was on the brink of a new economic downturn.

"The job number was good but not good enough to get us out of all this other stuff," said Marc Pado, chief US market strategist for Cantor Fitzgerald.

US president Barack Obama knows the current job creation rate will not replace the 8 million positions lost during the recession.

"We are going to get through this. Things will get better, and we're going to get there together," he said.

Some analysts have suggested the jobs figure improved before more people had stopped looking for work.

Credit rating fears

Wall Street closed amid reports that Standard & Poor's has informed the US government it plans to issue an unprecedented downgrade of the US credit rating from its AAA value.

CNN said it had been told by a senior administration official that the ratings agency was planning a downgrade after analysing the deal to raise the nation's debt ceiling struck earlier this week.

Meanwhile, despite the slight improvement on US markets, Europe's major stock exchanges fell into the red.

Both London and Frankfurt closed the day with losses of more than 2.7 per cent.

Over the week, the FTSEurofirst 300 index of top European shares fell 9.8 per cent, the biggest weekly fall since October 2008.

The leaders of Germany, France and Spain have scheduled immediate crisis talks, after China and Japan called for global policy cooperation to stop panic on the markets.

Discord among EU policymakers over how to stop a disastrous spread of the crisis to Italy and Spain has caused increasing frustration among investors who have also been spooked by US recession fears.

Most notably, the European Central Bank disappointed markets by buying Irish and Portuguese bonds but not government paper in Italy and Spain where bond yields have blown out this week on fears that they may need bailing out.

"Would the ECB please get serious," Berenberg private bank said in a note reflecting global concern. "We need a circuit breaker to stop the vicious circle in which fear feeds on fear."

The ECB is holding back help for Italy and Spain, the euro zone's third and fourth biggest economies, to force them to toughen austerity measures, including bringing them forward.

Italy's austerity package has been criticised for back loading the most important measures until after an election scheduled for 2013, clearly for political reasons.

But even if the ECB does move to reasure skittish investors, markets are likely to remain volatile for the time being.

Australian investors spooked

Despite Federal Treasurer Wayne Swan taking the unusual step of reassuring investors about Australia's growth prospects, by the close of trade more than $50 billion was wiped off the Australian share market.

The All Ordinaries index shed 4.2 per cent to 4,170, and the ASX 200 index lost 4 per cent in the biggest fall in over two-and-a-half years.

"Fundamentally I'd like to think the market is seeing the worst of it and will start to turn around," he said.

"But sentiment is what's driving the market's direction at the moment and not rational thinking and it's the speed at which that sentiment's turned in the last couple of weeks which is leading to the big sell-offs."

Westpac International economist Huw McKay says market volatility is something investors will have to get used to.

"This is far from good news. Equities aren't going to be like this everyday by any means, but I do think we are in a situation where financial turmoil is the default position," he said.

Grattan Institute program director and former ANZ chief economist Saul Eslake said Australian investors were worried about the prospect of another global recession.

"If the world as a whole hits a recession, there's a very good chance that we will have one as well," he said.

"Although it's important to remember that what happens in America and Europe doesn't matter as much to us as it used to, and the most important foreign economy for us is China, which although it's slowed a little bit, is still growing at a very strong pace and generating very strong demand for our resources."